CIT Saved...For Now

CIT, the lender to small businesses, managed to a squeeze a few nickels out of its own lenders in order to stave off bankruptcy late Sunday night. The beleaguered lender secured $3 billion from its bondholders at a steep price, roughly 10% over LIBOR, and will secure the funds with its highest-quality loans. The new loan will essentially provide the company with a bridge so that CIT can complete a series of debt-for-equity swaps in order to restructure the company's finances. Six of CIT's largest bondholders agreed to the proposal, including PIMCO, Oaktree Capital, Silver Point Capital, Centerbridge Partners, Capital Research and Baupost.

CIT's CEO Jeffrey Peek will remain in his current role but perhaps that is only because bondholders had a mere 48 hours to craft a deal to save the company and didn't get around to discuss attempting to overthrow the CEO. The WSJ had a great article about Mr. Peek recently which described him as a former Wall Street "pro" who came to CIT in 2004 from former posts at Merrill and CS First Boston. He worked hard to change CIT's culture, which at the time was a stodgy risk-averse lender to small businesses. Mr Peek eschewed the company's historical base near a shopping mall in Livingston, N.J. and installed the top brass in a glitzy office building on Fifth Avenue where he brought CIT into the high-society orbit by sponsoring the New York City Opera and other high profile New York non-profits. He threw lavish parties from his office and his home. Mr. Peek expanded CIT's presence in subprime lending, repackaging and selling loans just like the Wall Street banks were doing at the time. He bought a student-loan company and a small mergers and acquisition team. He even led CIT into the glamorous business of "leveraged lending", which has worked out so well for everyone in 2009. CIT's debt rose from $33 billion in 2003 to $55 billion in 2007. Everything was going swimmingly, well, until the credit ponzi scheme collapsed on itself. Now CIT's goose is cooked, and it appears to be the result of a series of very bad decisions made by its CEO. Something tells me Mr. Peek's days may be numbered.